Housing Market Shows Signs of Stabilization
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September 2, 2008—The housing market may be showing the first signs of stabilization, as existing home sales and new home sales increased. Government rebate checks and higher exports led the Bureau of Economic Analysis to upwardly revise their estimate for second quarter GDP growth, as consumer confidence continued its resurgence.
Existing Home Sales
According to the National Association of Realtors, existing home sales rose 3.1% in July. Sales of both single-family homes and condos increased. July's uptick in sales may show the first signs of stabilization in the housing market. However, problems remain. The median existing home price is off 7.1% compared to a year ago. Inventory remains high, as 11.2 months worth of supply still sits on the market. A weak housing market is expected through the year, as concerns over credit quality and unstable financial markets will keep standards for mortgage underwriting high, thus keeping demand low.
New Home Sales
New home sales increased 2.4% in July to 515,000 units. While a positive sign, the Census Bureau significantly revised June figures downward to 2.1%. Originally, the Census Bureau reported a downturn of only 0.6% in June. Inventory inched upward to 10.1 months in July. Last month indicated 10.0 months of inventory was on the market. The median price of a new single-family home increased slightly to $230,700 in July after increasing in June. The latest figures confirm that the housing market is still correcting itself and a quick recovery is unlikely due to tightened lending standards and continuing uncertainty in financial and credit markets.
Gross Domestic Product
The Bureau of Economic Analysis' (BEA) second estimate of 2nd quarter GDP revealed that the economy grew 3.3% at an annualized rate, a significant upward revision to the original 1.9% increase reported last month. Many of the components of GDP increased in the second estimate. Final sales (GDP less inventories) increased to 4.8%. Stronger consumption, driven by the stimulus checks, helped push GDP upward. Higher exports and a better trade balance also helped the increase in GDP. Businesses shed less inventory in the second quarter and government spending increased. This report contained the first data on corporate profits and indicated a fall of 2.4%, following declines in the previous three quarters. Though a positive report, the economy remains weak. The faltering housing, credit, and labor markets are a continuing drag on GDP growth and the economy will likely face outright declines by the end of the year.
Consumer confidence rebounded in August, rising 5.0 points to 56.9. In July, the index stood at 51.9. The leading components of the survey showed mixed feelings about the economy. Consumers' expectations for the future surged, rising over 10 points to 52.8, up from 42.7. However, people remained concerned about their current economic conditions, as the present situation index fell to 63.2 from 65.8. Moreover, consumers remain worried about labor market conditions, as those that believed jobs were plentiful decreased to 13.1%, down from 13.5% in July. Looking forward, consumer confidence should continue to improve, though slowly, as energy prices moderate. If the housing market rebounds, consumer confidence will also improve. However, a return to record-breaking energy prices or a wobbly labor market could send the index downward.